Rate survey: Average card rate climbs to record high of 16.96 percent

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The average credit card interest rate settled at a record
high Wednesday after another major issuer increased APRs by a quarter of a
percent.

Just over a month after the Federal Reserve increased its
benchmark interest rate, Chase matched the Fed’s rate change on its cards.

Chase’s across-the-board rate hikes helped push the
national average APR to an all-time high of 16.96 percent, according to
CreditCards.com’s Weekly Credit Card Rate Report.

For this week’s rate report, CreditCards.com reviewed the
APRs, promotional terms and annual fees of 100 U.S. credit cards.

Chase is one of the last major issuers to match the Fed’s June
2018 rate hike. Over the past month, American Express, Citi, Bank of America,
Discover, Capital One, Wells Fargo, U.S. Bank, USAA and Barclaycard have all
increased APRs by 0.25 percent.

The regional bank TD Bank increased rates by a quarter of a
percent this week as well. It joined several other smaller banks that have also
hiked rates in recent weeks, including PNC, Regions, SunTrust, Key Bank,
Comerica and Huntington.

Issuers
reluctant to freeze or cut rates

The ongoing rate hikes have made borrowing significantly
more expensive for credit card holders – particularly for those who can only
afford to pay the minimum amount due. A 1-point rate increase, for example,
could cause a borrower who owes $5,000 on a card with a 17 percent APR to pay more
than $400 in additional interest over time.

As average rates continue to break records, some borrowers
may wonder if issuers will eventually cut rates or, at the very least, refrain
from increasing them further. But so far, most issuers appear to have no plans
to decrease rates or freeze them.

Although issuers aren’t required to increase rates when the
Fed does, most issuers have responded to the rate hikes by matching every rate
change. As a result, credit card APRs have climbed sharply in
recent years after staying within rounding distance of 15 percent for more than
five years.

In 2013, for example, the national average APR stood
at 14.96 percent, according to CreditCards.com data. Two years later, it had hardly
budged, clocking in at 15 percent.

It wasn’t until late 2015, when the Fed began hiking rates
after a years-long pause, that interest rates began to climb.
Since then, the average card APR has swung from 14.99 percent in December 2015
to nearly 17 percent today.

Some analysts have predicted that as interest rates rise on
the majority of U.S. cards, a handful of lenders will begin cutting rates to
set themselves apart. But so far, that mostly hasn’t come to pass. For example,
nearly all the cards monitored by CreditCards.com have largely left rates
alone, except when matching the Fed’s rate increases.

One issuer, Navy Federal Credit Union, said it cut rates on
select cards in July 2017 after it saw other issuers increasing rates in tandem
with the Federal Reserve. But no other issuers tracked by CreditCards.com have
made a similar gamble. As a result, the national average APR for new card
offers hasn’t declined once since January 1.

Fed
chairman: Rates are highly like to keep rising

Fed Chairman Jerome Powell confirmed to Congress on July 17
that the rate-setting Federal Open Market Committee (FOMC) plans to keep
increasing the federal funds rate.

“With a strong job market, inflation close to our objective
and the risks to the outlook roughly balanced, the FOMC believes that – for now
– the best way forward is to keep gradually raising the federal funds rate,”
said Powell in testimony
before Congress.

The
Fed could change course if the economy starts to falter. It first cut rates to
near zero in 2008 to help stimulate the economy and encourage people
to borrow. As the economy has strengthened, the Fed has slowly increased
interest rates.

“It is difficult to
predict the ultimate outcome of current discussions over trade policy as well
as the size and timing of the economic effects of the recent changes in fiscal
policy,” Powell said in his testimony. But, “overall, we see the risk of the
economy unexpectedly weakening as roughly balanced with the possibility of the
economy growing faster than we currently anticipate.”

What that means for
consumers: Interest rates on credit cards and other variable rate loans will
almost certainly keep going up, forcing borrowers to pay much more than they
used to pay to carry a credit card balance.

Methodology: The national average credit card APR is comprised of 100 of the most popular credit cards in the country, including cards from dozens of leading U.S. issuers and representing every card category listed above. (Introductory, or teaser, rates are not included in the calculation.)

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